ERC approves new pricing methodology for WESM

Published January 3, 2021, 6:30 AM by Myrna M. Velasco
https://mb.com.ph/2021/01/03/erc-approves-new-pricing-methodology-for-wesm/

A new price determination methodology (PDM) has been instituted for the Wholesale Electricity Spot Market (WESM) in its shift to shorter five-minute trading interval that is targeted for enforcement middle of this year.

The Energy Regulatory Commission (ERC) approved the new pricing methodology based on the filing of the Philippine Electricity Market Corporation (PEMC), the governing body of the spot market.

As explained by ERC Chairperson Agnes T. Devanadera, “the new PDM provides amended features with regard to price determination and settlement in the WESM and consolidated the various pricing mechanisms which are currently contained in several issuances of the Commission.”

The new market management system (NMMS) or trading platform of the WESM will be migrating to a shorter trading interval by June 2021 – and this is expected to yield higher degree of efficiencies in the operations of the spot market.

For the trading participants, it will entail more intense form of competition that they will be confronted with; and in the process, it is expected that this will result in more competitive or cheaper rates for consumers.

In handing down its ruling for the modified PDM, the industry regulator noted that it primarily considered the “shortening of scheduling and pricing intervals from one-hour to five (5) minutes.”

The ERC also factored in several facets, such as the: adoption of ex-ante only pricing (based on forecast rather than actual trading results); automatic re-runs when prices reflect constraint violations to provide timely disclosure of settlement-ready prices; and then the hour-ahead projections, in addition to the week-ahead and day-ahead projections.

Such elements in the pricing mechanism for the WESM, according to the regulatory body, will “facilitate commitment decisions of trading participants” – which are generally the generation companies (GenCos) that have been offering their capacities in the spot market.

“The adoption of the enhanced WESM design and operations provides, among others, a shorter dispatch interval of five (5) minutes which will result to better pricing signals as it instantly reflects the changes in supply and demand, and potentially reduce the requirement of frequency regulation reserve which is beneficial to consumers,” the ERC stated.

Devanadera deemed that “projecting possible conditions in the next five (5) minutes will result in a more accurate picture of the actual conditions as compared to projecting the possible market conditions in the next one hour.”

She further explained that “since regulating reserves are needed to address the fluctuations in supply and demand, lesser fluctuation brought about by better projection would mean less requirements for regulating reserve,” – that is in reference to a power supply being procured to ensure power system reliability, so if there would be less capacity sourcing for that, this could translate to lower cost for consumers.

In the portended enforcement of automatic pricing re-runs, the ERC emphasized that this will set “correct pricing signals and timely publication of settlement-ready prices in real-time for efficiency and transparency in prices.”

The industry regulator expounded “with better pricing signals, congested areas that need additional local generation and transmission improvements and enhancements are identified and improved.” Consequently, the ERC highlighted that “lower congestion cost will result to lower resulting market prices which will redound to the benefit of the consumers.”